A typical tax time stressor is the idea of an IRS audit, during which the IRS reviews your previous year’s tax return for discrepancies. Similarly, the IRS can do the same in the case of bankruptcy, assessing the information offered during your bankruptcy case.
While many bankruptcy bound individuals might recoil at the idea of setting themselves up for a second potential audit, it is important not to panic or consider this possible evaluation as a deterrent to heading down the road of removing or reducing your debts through bankruptcy.
In actuality, the chances of an audit are extremely low; and, if you are audited, your liability is easily minimized (or rendered non-existent) by maintaining as much transparency as possible during the bankruptcy process; and by not willfully withholding important details about your particular bankruptcy case.
Speaking to the former point of the unlikelihood of a bankruptcy audit, it’s important to understand that there are much fewer bankruptcy audits than IRS audits. For example, in 2009, one of every 583 bankruptcy cases received an audit; this can be compared to one in 100 tax returns that the IRS audited that same year.
In essence, approximately half of bankruptcy audits are randomly selected from the pool of bankruptcy filings in a given year. The remaining 50 percent receive an audit as a result of a “red flag” or irregularity in a bankruptcy case, leading the bankruptcy court to clarify a case and determine that the information provided is honest and accurate.
So what happens if you roll the dice and do receive a bankruptcy audit? In the unlikely event you are tapped for a bankruptcy audit, you and your attorney will be notified within 10 days of filing your bankruptcy petition. As a result, if your bankruptcy filing has already occurred some weeks, months or years ago, you are in the clear and need not worry about an audit at all.
However, if you do receive a notice of selection for an audit, a private audit firm is hired to assess your case. This independent firm will explore your bankruptcy, examining the debts, assets, income and expenses in your particular bankruptcy filing, including a comprehensive search of any additional assets not listed in your initial filing. Once your case has been evaluated, the results are distributed to the relevant bankruptcy court.
In a very few cases, the private audit firm will determine that a bankruptcy case includes a “material misstatement”—an omission in the filing or an inaccurate piece of information that could impact the court’s assessment of your bankruptcy claim. Don’t be alarmed. In many cases, these “material misstatements” are unintentional: simple clerical errors in accounting for your income or your understanding of assets in your bankruptcy estate. As a result, it’s important to take care in your estate assessment, working with a bankruptcy attorney to dot every “i” and cross every “t” in your bankruptcy case. Most importantly, it’s vital to be truthful about all relevant assets and income as a finding that your misstatement was intentional can result in a dismissal of your case or possibly charges of fraud.
As a result of the need for precision and accuracy, it's important that you seek competent and experienced bankruptcy counsel from the very start. An experienced bankruptcy attorney knows the ins and outs of the bankruptcy process and the audit process and can assist throughout your case.
The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-919-646-2654, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.